YELLOW CARDING CUSTOMER FEES

As we were watching a great World Cup soccer game yesterday, it dawned on us that banks underutilize the use of a "yellow card." In soccer, the yellow card is pulled out by the referee as a warning to a player after an infraction. There are no penalties attached, other than the fact that if you get 2 yellow cards, you then get a red one and are promptly ejected from the game. Whether an overdraft coverage fee, returned item charge, stop payment fee or non-associated ATM fee, almost every customer would like a yellow card and have the opportunity to waive it at their bank and not incur such charges. The problem arises over once a bank starts waiving fees, as customers expect them to continue to do so in the future. In general, banks are doing a much better job at holding the line on fees, increasing profitability. In 2005, banks waived just a little more than 22% of fees, down from 40% several years ago. One strategy that high performing banks use is to institutionalize the fee waiving system. This occurs along several dimensions. First, banks must have systems to track when fees are waived, for what and for how much. Assuming the bank can handle fee waiving quantification, it must then make it a service attribute. Certain customers, tiers or account types should get a set number of fee waivers or "yellow cards" per year (usually about 1 to 3). This, of course, should be roughly attributed to product or customer profitability. Many customer profitability systems can handle this, including our outsourced Relationship Profitability solution. Tacking and managing fee waiving gives executives a quantifiable roadmap over how to optimize fees and fee waiving. By utilizing proper fee waiving techniques, it is estimated that profitability can be increased by an average of 15%. Fees for good customers are waived (better retaining this group), while fees are consistently charged to less profitable clients, making them either leave the bank or become more profitable. Once a bank can track and target specific customers for fee waiving, it can then leverage marketing. Making fee waiving a separate attribute allows the bank to gain a competitive advantage. Some banks have branded formalized fee waiving under the names of: "Opps Protection," "Waive Me," "PROtect," "Stuff Happens," and "Grace Units." Formalized fee waiving is most successfully packaged with small business accounts, student checking and senior bundles, in order to serve as a differentiator in the marketplace. More importantly, it allows the customer to manage a set number of fee waivers for the year, by letting them decide when they would like to use them. Banks have found that this methodology dramatically reduces future expectation of fee waiving, thereby increasing revenue. If you are looking to increase fee income and provide a boost to deposit gathering, consider formalizing and marketing a fee waiver program. Most likely you are already giving your customers a "yellow card" anyway, so there is only upside at formalizing the process.